Introduction To International trade: What It Is And The Advantages For Participating Countries
International trade, we live in a global world. However, when we talk about foreign trade, it is challenging to avoid raising its negative topics:
” Multinationals should not be given such facilities, “I do not know why imports are allowed, they destroy local companies, “The internationalization of the company only leads to companies leaving our country to produce in underdeveloped countries. “
At this point, we cannot help but wonder, Why does international trade consent? What advantages does it bring to participating countries and companies?
What Is International Trade?
Foreign trade could be defined as the exchange of goods and services between two or more countries or economic regions (such as, for example, the European Union).
International trade is defined by its degree of openness. The most limited case would be autarky, a situation in which the country in question would refuse any form of foreign trade.
Full openness would be the opposite extreme. In this case, the freedom to foreign trade is total: without restrictions or tariffs.
And, of course, between both extremes, there are intermediate points: countries that decide to import only those goods that do not produce efficiently, countries grouped by economic regions with freedom of trade between their borders but with limits to trade with other countries, etc.
All The Advantages Of Foreign Trade
Thanks to international trade we can purchase goods and services from other countries that develop them more efficiently than we do. Thus, we will be able to specialize in the production of those articles in which we have a competitive advantage; in other words, those in which we actually add value to the exterior.
This implies an international specialization. As countries, by focusing only on those tasks that we really do well, we will specialize in doing them. This will further increase the efficiency with which we perform such functions.
International trade enables participating countries to take advantage of economies of scale by better absorbing fixed costs. By increasing the volume of production of those goods and services that we actually perform well, we will be able to produce at a lower cost per unit.
In addition, it fosters competition since countries will have incentives to innovate and seek to reduce costs to continue maintaining their competitive advantage vis-à-vis abroad. In a closed economy, local companies will have less incentive to innovate, given the lower volume of competition.
Related to the above, companies also have incentives to differentiate their products and improve their quality. In this way, customers will have higher quality products.
The international market may represent an exit from the saturation of the national market. For example, given the stark national market situation of the Spanish economy, many companies have seen a way out of their activity on the world market, orienting their products to growing economies. In this way, the country can take advantage of its idle manufacturing capacity.
On the other hand, international activity allows countries to diversify risk. Thus, the success (or failure) of a country’s economy will not depend solely on how good (or bad) its internal situation is.
The country may acquire those raw materials that it does not possess or those products that it cannot produce because it is not profitable. For example, Spain is an oil-importing country since there is a shortage of this raw material in its territory.
Regarding consumers, international trade allows the acquisition of goods and services from those countries that develop them more efficiently than we do, in other words, at a lower cost. In this way, consumers will be able to purchase products at a lower price.
In addition, they will have a greater variety of products. In closed economies, they had to settle for local production, but now they will have a wide range to choose from.
And, finally, international trade can be a professional outlet. Many are the companies that have decided to launch into the conquest of the foreign market due to the contraction in domestic consumption.
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